4/25/2012 @ 12:52PM115,498 views

The Surprising Reason That Oil Subsidies Persist: Even Liberals Love Them

Likewise, ExxonMobil has access to oil fields and refineries in many foreign countries. If they are comparing projects here and abroad, that tax credit will factor into their decision. Whether it is enough to push them one way or another is something I don’t know. Many opponents of subsidies imagine that the impact will merely be taxpayer savings as ExxonMobil loses out on this tax credit. But what if the impact is that we lose domestic jobs as ExxonMobil shifts operations out of the U.S. (something that tax credit was designed to prevent)? What if the impact is that we continue to use just as much oil, but more of it now comes from overseas because we placed our domestic producers at a competitive disadvantage? To determine that there should be some independent analyses to examine the impact.

When to Subsidize?

I agree with the definition provided by Oil Change International; that a fossil fuel subsidy is any government action that lowers the cost of fossil fuel energy production, raises the price received by energy producers or lowers the price paid by energy consumers. I also agree that both oil production and consumption are subsidized in various ways. But these subsidies aren’t the cash payments to oil companies that many people imagine. If they were, they would be much easier to eliminate.

It is certainly acceptable to debate whether subsidies such at the manufacturer’s tax credit should be eliminated. But it is important to be informed as we discuss the issue. Anyone who discusses elimination of specific subsidies should know the answer to three questions: 1). What is the purpose of this subsidy?; 2). Is it working as intended?; and 3). What is the projected impact from eliminating it? For manufacturer’s tax credit, the intended purpose of course is to keep manufacturing in the U.S. Whether it has actually been worth the money is something that I can’t say without seeing a study on the impact of the tax credit.

The ideal use of a subsidy should be when we want to stimulate action that would not have otherwise been undertaken. Regardless of how profitable a company is, they are not going to intentionally make unprofitable business decisions unless an incentive such as a regulation or a subsidy is applied. If we subsidize an action that would have been undertaken in any case — business as usual — then that would not ordinarily be a good usage of tax dollars. Opponents and proponents are both apt to make unsubstantiated claims with respect to a subsidy’s impact, but they need to have some basis for their opinions. Otherwise we may relearn the lesson that some actions have undesirable consequences. If you simply take the position — “They don’t need these tax breaks“ — then don’t be surprised if they make decisions you didn’t expect them to make.

Conclusions

If we are to have a productive discussion of fossil fuel subsidies, it is important that participants understand what they are, their intended purpose, and the projected impact of removing them. Projecting the impact requires more than a guess. Because of misleading political rhetoric, people imagine these subsidies as cash payments to oil companies. But, many of these subsidies are not what people think they are. In many cases they are benefiting people who have nothing to do with the oil industry — yet the money spent on these programs is still tallied against the oil industry. The result is a great deal of anger over spending that often benefits the angry people. That is why it is so hard to get rid of fossil fuel subsidies; a majority of the population likely supports at least some of them without realizing that they are in fact subsidies. And until those who are loudly screaming that we must eliminate these subsidies actually take the time to understand what they are — as well as the impact of removing them — we can expect there will continue to be much heat and little light on this topic.

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This is a solid example of how complicated it is to follow up on a simple argument. The argument being – Should companies make XXXXX profit get MORE money from tax dollars! The reflexive answer is – no, of course not. In reality it is a great deal more complicated then gut reactions.

Excellent article. So much hue and cry about oil subsidies, yet virtually no real analysis of what these so-called subsidies consist of. Thank you for shedding some light on the matter. A few other thoughts to add to your analysis:

Consider that Exxon paid taxes in 2011 equal to approximately 42% of their pre-tax income and produced net income after tax of only 9% of their revenues, while Apple paid only 24% in taxes and net income came to about 26% of gross revenues. If Exxon is representative of the industry, how is it that the oil companies are not paying their fair share?

Consider also that Exxon is one of the most widely owned companies in the world. The “99%” who have IRAs or 401Ks invested in mutual funds are undoubtedly owners and therefore beneficiaries of whatever form of subsidies may exist.

Finally, consider as you point out that while the benefit of many of these subsidies goes to someone other than the oil companies, removal of them would have no impact the oil companies. Farmers, low income families, and the federal government’s strategic oil reserves will continue to purchase products with or without the subsidies. The oil companies will still generate the same level of revenues and net income. The consumers will still purchase the products regardless of the price or the subsidies – gasoline prices have doubled in the last 3 years and consumption continues.

Just check out the oil subsidy database and you can get all the info you want, You will be surprised at who we give oil subsidies to. Also, check out dirtyenergymoney.com and you can see who gets oil and coal money, of our elected officials, and how they vote. It will also explain why the Republicans insist no climate change, and we need fossil fuels. Shows how they vote, and it is not for the people.

Be careful when you use the word taxes “paid”. Exxon’s deferred taxes increased 1.5B but that would only drop the taxes paid to 40%. From Exxon’s financial statements, they had cash payments of 27B for taxes. From page F-55 of those statements, 87% of their income taxes went to foreign governments. Exxon made 11.7B in the USA and paid 1.5B in taxes to the US Treasury. This information comes from Exxon’s 2011 annual report available on their website if anyone want to double check the numbers.

If I had the power I’d pass a law that fined people for purposelessly vilifying others without producing the a shred of evidence to support their claims. In this case Big Oil Companies aren’t asking or receiving money, they’re only following the law. Same thing for the financial collapse. It was govt’s Fair Housing Act that eliminated credit standards allowing anybody to buy house after house with nothing. IMO, govt’s role is to oversee these things, they failed, they always fail.

i hate these pompous intellectual arguments that bog down the basic issue. The world needs to be weened from using fossil fuels and nuclear energy because it is killing the planet. We need to move toward solar, wind, and batteries which will take an advanced civilization long into the future. Many scientists believe there is extreme urgency in making these changes ASAP. Changing corporate tax intensives is a good tactic to help achieve this.

“i hate these pompous intellectual arguments that bog down the basic issue.”

The basic issue is that if you don’t even understand what these subsidies are, you have zero chance of reforming them.

Saying “we must get off of oil” is the sort of cliche that adds zero to the discussion. I have written loads on how to get off of oil, but that wasn’t the purpose of this column. It is to correct misinformation so we can have a meaningful discussion.

OK, let’s do a thought experiment. We cease using fossil fuels and nuclear energy. We use wind, solar and batteries. Where I live on the East Coast, it’s cloudy for much of the winter, fall and spring. The wind is around 1 MPH for most of the time. So, we shiver in the dark. For a bit. Because, we’d starve waiting for the wind powered trains and solar powered trucks bringing our food to us. Our sailing ships would take so long to bring food from abroad that it would be long rotten by the time it arrived. No more fertilizers for the farms either, as they’re petrochemical products, so crop yields go way down. More starving people.

Try finding a WORKABLE solution for fossil fuel replacement before even considering replacing them with your notions that are inefficient, ineffective for most of the nation and overall insufficient to provide for much of the nation’s needs. Few are the people who believe we should remain on fossil fuels forever. But, without a replacement, our civilization would fail and starvation would be rampant.

As for subsidies, as the author showed in the article, it’s a complex issue. One that would require a gradual solution to be implemented, as a massive change triggers massive effects throughout the financial systems, energy production systems and the economy overall.

Good discussion, but if you go to the oil subsidy data base, you will see that trillions are spent overseas to support the oil industry. If you see the movie “we are not broke” you will see that $750 B that the government knows of is overseas and untaxed, So they avoid paying US taxes, they get subsidies, they then ask for repatriation of that money to give to shareholders. With the argument in the above article, about the elimination of the energy supplement to the elderly, why can’t we have the program that helps the 99% or less fortunate, and eliminate that which benefits the 1%? Who says we have to have both, our legislature. If you go to dirtyenergymoney.com, you can see where the money comes from, where it goes and who votes for big oil and coal, and follow the money. When will we see the system is broken, our governments represents the 1%, and until we stand up and say enough is enough nothing will change.

How is that ANY different than Apple stashing billions overseas to avoid taxes. Whats wrong with avoiding taxes? What right does the government have to ours or anyones money? Liberals just get butt hurt when it involves oil. Stupidly forgetting that without oil, there would be no plastic for their Ipads, eco friendly water bottles, or incubators for NICU babies…. just to name a few things.

That is stupid and sophomoric. We cn still keep our cars…just full electrics, hybrids, P-ZLEV, ZLEV and clean burning Diesel (Mercedes Blue comes to mind) vehicles will be needed to do the work that ordinary fossil fuel vehicles now do. The Technology is already HERE, proven and reliable and it would be more so if knuckle-dragging Neanderthals would come into the 21st century and leave the engines of our destruction behind.

Our civilization MUST move past the rampant, indiscriminate use of what, basically, is poison. We are killing our planet with it. If we don’t STOP, or at least minimalize our use of fossil fuels, we will not be around long to worry about how we get our food and other goods to us. A lot of us will die and it will be a horrible and undignified end to the human race. Especially when, if it were not for greed, hubris and an unbreakable belief that we are here to “subdue the Earth” this would all have been done by now. The GOP of today believes that regulation restricts business. Duh! It is supposed to, idiots. Like children, imagine if there were no rules in the home, no parental supervision and no guidance other than the child’s WANTS. Greedy corporations are just like that and without rules, without supervision, they WILL go off the rails and hurt themselves or others when they do not get what they want. There needs to be strong, effective ans swift punishments, even severe ones for those that would break the rules.

Cian, let me know what law allows me to not pay taxes? I am missing that one. And as far as Ipads, I don’t own one, and the items you mentioned are probably made in China, with labor supplied by their Labor Camps with labor supplied by lowest wages, youngest persons, living in dormitories. You know the ones that made the news who are committing suicide rather than live under those conditions.

Except, we could get rid of our dependency on oil… big time. It will take time, but we could do it if we actually started. Nuclear is safer and better (especially if we invested in Thorium plants over Plutonium) and if we’d invest more in electric cars like with Tesla instead of letting lobbyists buy off politicians to try and squash their chance at being used/spread(which, if you do a little research, you’ll find they have tried to do in places like Texas, North Carolina, and other red states, shocking, huh? And guess who pays these people that pushed those bills? oil companies as well as car dealerships and the sorts).

And oil subsidies are pointless. no one loves them except people who are ignorant that subsidies do NOT lower our gas prices and people who are bought off by the oil companies.

You are missing the point, although you are in the ballpark. Subsidies will continue to exist because 1). People don’t know what they actually hard; 2). Everyone loves at least one of the subsidies. As an example, liberals don’t want to get rid of the Low Income Home Energy Assistance Program. Well guess what? It’s in the list of fossil fuel subsidies, so they are (typically unknowingly) supporting fossil fuel subsidies). I gave several examples like this in the article.

Full stop. “It’s in the list of fossil fuel subsidies…” Welp fuck it guys, guess we should pack our bags and go home. Ok… we get it. You chose to trivialize the opposition’s argument by belittling it. But you know what… It’s not easy to find the actual information to have the real policy debate. You did the honorable job of consolidating the information for people BUT instead of building on that first step, you quash the entire conversation. It’s ugly and disgusting and blatant. Why are all subsidies off of the bargaining table? All or nothing? You clearly displayed how each subsidy is actually quite uniquely separate so why can’t we make cuts to them individually? You are framing this in a way that won’t allow us to do so and that is NOT the full scope of the argument. Come on man…

Where in my article do I propose this? I am showing people why there will always be oil subsidies by showing some examples of what these subsidies actually are. I am informing people about subsidies, which you oddly characterize as trivializing, belittling, but honorable. But when you extend this to “so all reform discussion is off the table?” you have gone into territory that wasn’t even implied in the article.

Hi Megan, the $6 billion a year number was often thrown around as a result of the ethanol tax credits, which indeed were costing that much before they were retired at the end of last year. Biofuels do receive subsidies, but I am not sure that there is a generally agreed upon number. But I would say it is certainly less than $6 billion a year following the phaseout of the ethanol tax credit.

“If we are to have a productive discussion of fossil fuel subsidies, it is important that participants understand what they are, their intended purpose, and the projected impact of removing them.”

Which is why it is puzzling and frankly irritating that mainstream conservative politicians and commentators are religiously opposed to energy subsidies outside of oil and refuse to have an intelligent conversation about fuel subsidies outside of oil. Thanks for the great article.

This reminds me of the DC Lobbyist who literally write the policies the wish to have the lawmakers push….its simply blatant propaganda…period…these subsidies, and corporate welfare in general, is not in the interest of the general good. Remember the justifications for NAFTA? How about the arguments the corporations presented for the profit driven motive of outsourcing jobs and manufacturing overseas? 3 decades later we have witnessed how that has contributed to the intellectual capital, economic growth as well as the elevation of the GDP and standard of living for those formerly 3rd world nation. We have watched as companies accumulate MASSIVE amounts of liquid cash reserves (Apple has over $80 BILLION in overseas accounts outside IRS jurisdiction). Ultimately, this undermines the US economy from the multiple ripple effects of lost jobs, reduced disposable income and reduced domestic spending, loss of innovation and manufacturing productivity, and ultimately fraudulent accounting which maintains TRILLIONS in cash of corporate profits overseas. So tell me again why we should continue this policy of corporate welfare? I am more interested in guessing how much Robert Rapier was paid to write this article, and which corporations contributed to that. The argument that these subsides are required to support domestic programs is absolutely asinine. If these companies were compelled to return manufacturing, jobs and taxes back to the US then corporate as well as social welfare would likely be moot issues.

Marc, I am trying to figure out where you stopped reading the article to decide to comment on it. Best I can tell is maybe at the headline, because your response isn’t at all relevant to what I wrote. Your response was as if I had written an article explaining why we need subsidies — and this is clearly what you thought the article was about. Had you actually read it, you would have seen that what it is about is explaining why they exist and aren’t likely to go away. The fact that LIHEAP is a subsidy but it helps low-income people means liberal support certain subsidies. So even though they are the ones calling for subsidies to end, they support them. Of course had you actually read the article, that would have been clearly understood.

“I am more interested in guessing how much Robert Rapier was paid to write this article, and which corporations contributed to that.”

I see that you are a person who goes off half-cocked and comments on an article you didn’t read, but are you also a person who hurls accusations and smears people with zero evidence? I get paid nothing to write here. Zero. So I will leave it up to you to figure out which corporations contributed to my zero dollar compensation.

This reminds me of the DC Lobbyist who literally write the policies the wish to have the lawmakers push….its simply blatant propaganda…period…these subsidies, and corporate welfare in general, are not in the interest of the general good. Remember the justifications for NAFTA? How about the arguments the corporations presented for the profit driven motive of outsourcing jobs and manufacturing overseas? 3 decades later we have witnessed how that has contributed to the intellectual capital, economic growth as well as the elevation of the GDP and standard of living for those formerly 3rd world nation. We have watched as companies accumulate MASSIVE amounts of liquid cash reserves (Apple has over $80 BILLION in overseas accounts outside IRS jurisdiction). Ultimately, this undermines the US economy from the multiple ripple effects of lost jobs, reduced disposable income and reduced domestic spending, loss of innovation and manufacturing productivity, and ultimately fraudulent accounting which maintains TRILLIONS in cash of corporate profits overseas. So tell me again why we should continue this policy of corporate welfare? I am more interested in guessing how much Robert Rapier was paid to write this article, and which corporations contributed to that. The argument that these subsides are required to support domestic programs is absolutely asinine. If these companies were compelled to return manufacturing, jobs and taxes back to the US then corporate as well as social welfare would likely be moot issues.

This reminds me of the DC Lobbyist who literally write the policies the wish to have the lawmakers push….its simply blatant propaganda…period…these subsidies, and corporate welfare in general, are not in the best interest of the public. Remember the justifications for NAFTA? How about the arguments the corporations presented for the profit driven motive of outsourcing jobs and manufacturing overseas? 3 decades later we have witnessed how that has contributed to the intellectual capital, economic growth as well as the elevation of the GDP and standard of living for those formerly 3rd world nation. We have watched as companies accumulate MASSIVE amounts of liquid cash reserves (Apple has over $80 BILLION in overseas accounts outside IRS jurisdiction). Ultimately, this undermines the US economy from the multiple ripple effects of lost jobs, reduced disposable income and reduced domestic spending, loss of innovation and manufacturing productivity, and ultimately fraudulent accounting which maintains TRILLIONS in cash of corporate profits overseas. So tell me again why we should continue this policy of corporate welfare? I am more interested in guessing how much Robert Rapier was paid to write this article, and which corporations contributed to that. The argument that these subsides are required to support domestic programs is absolutely asinine. If these companies were compelled to return manufacturing, jobs and taxes back to the US then corporate as well as social welfare would likely be moot issues.

That was interesting. I was certainly someone who would have been against “oil subsidies” while supporting low income heating benefits and the like without realising that they’re the same thing in some cases. It seems silly that they’re classified as oil subsidies – heating benefits should be classified as something like “energy” or “heating” subsidies, and the money should be able to be directed to renewable sources where appropriate. To me the phrase “oil subsidies” brings to mind money (or tax breaks) going to oil companies specifically for being oil companies, rather than going to oil companies for being suppliers of energy.

Maybe it would be interesting to see if the other $2 billion (see below quotes) is in subsidies to oil for oil, or if it has some other intended reason like with the farming and heating subsidies. In all honesty I’m too lazy to look at the OECD-IEA report, especially as I don’t live in the US, but I imagine it has the answer to that question and someone else may want to look.

“The summary of oil-related subsidies in the U.S. for 2010 totals $4.5 billion” “Those three programs account for $2.5 billion a year in “oil subsidies.””

Nice article. Although LIHEAP is a program based on good intentions, shouldn’t people reconsider the processes of LIHEAP and other programs that enable fossil fuel companies to thrive? LIHEAP, for instance, has got some shady history. See http://www.gao.gov/new.items/d10621.pdf The subsidy issue is indeed very complex.

It seems to me the author is adding a lot of stuff, intentionally to confuse the issue. Apple computer, LIHEAP, Farm Fuel Tax exemptions, etc.. The real question is why are we giving the oil industry a tax break to keep them here in the U.S.? Where are they going to go? Exxon isn’t going to sell gasoline to me here if they move all the Exxon stations to some other country.

His arguments, though they sound plausible, still add up to, “Oh it’s so complicated that we really can’t do anything about it, so we just better keep on giving the oil industry whatever they want.” In addition, the author trivializes any opposing opinion with, “You haven’t read the article.” or “It’s a cliche.” Then there is the old, “It’s the Democrats.”

His analysis seems to be written by a proponent of the oil industry and therefor, inspite of his claim to be exposing the facts doesn’t carry much credibility. So, I agree with him that to form an opinion, one must do a lot of research to determine the value of any of these subsidies and to whom they are applied. Certainly the author’s article appears to be biased.

What I see is an industry making record profits, yet continually raising the price of fuel. I see an industry that spends huge sums in lobbying Congress and electing politicians to gain favored treatment. That will never set right with me.

“It seems to me the author is adding a lot of stuff, intentionally to confuse the issue.”

The author added a lot of stuff to show that the sound bite is actually a much more complex issue. This is why we continue to have subsidies. But some people prefer sound bites over reality.

“Apple computer, LIHEAP, Farm Fuel Tax exemptions, etc.. The real question is why are we giving the oil industry a tax break to keep them here in the U.S.? ”

Why give any industry any tax break at all? There are two questions here really. Should oil companies be denied tax breaks that other companies get? And should subsidies that help poor people afford fuel be called fossil-fuel subsidies? As the situation currently stands, there are people getting angry over subsidies to Big Oil when they themselves are among the beneficiaries of those subsidies.

So this article was an attempt to explain why subsidies are more complex than they might appear at the surface, and that the people calling for an end to them don’t really want them to end because they benefit from them. Farmers may want “fossil fuel subsidies” to end, but start talking about taking away their tax exemption and they won’t be too happy.

Some issues are black and white, and some are grey. This one is very grey. You can try to convince yourself otherwise, but I have clearly spelled out the facts here and you have not challenged any of them.

And we are brainwashed to believe what we read in certain publications, but if we research we find that these types of articles give you an either/or, but completely lack common sense, which we are starting to find is what we need in today’s society, and dealing with our representatives. So let’s just keep on pushing for a common sense government, and get rid of this one. We are all starting to realize that until we stand up against money in politics nothing will change. Is this what we want to leave our children? I think not,

I don’t think our founding fathers expected the people to subsidize any corporations, in fact, I think it was the opposite. The government was for the people by the people, and if all paid their fair share, instead of taking money overseas, and we had a world tax on corporations, we would not have this problem. We are to be a free market, but we are a market being held up by the people. Nothing has to be complex, grey or white, it can be fair, and even, and work for the people.

Being so far in debt, I don’t think we should subsidize any corporations, or company, and that what is a free market? What we have now is a market subsidized by us, and i am sick of it. Get rid of all subsidies, and let the cards fall where they may, and if you look at the oil subsidy data base, as well as the farm subsidy data base you may be in for a surprise.

Excellent article. I didn’t realize that the strategic oil reserve was considered a subsidy. Nor did I know that the farmers fuel tax credit was a subsidy. My opinion is that the term subsidy should be redefined that excludes the manufacturer’s tax credit especially if the credit isn’t any higher than a similar venture meaning green energies versus existing fossil fuel. It probably wouldn’t do any good since many politicians would make up their own definition to suit their agenda as is evident in all politics. Rather than citizens and politicians attempting to complain about those rich oil companies, they should just examine the final profitability of all companies on a equal basis. In other words, if the company is profitable the stock market will show than success. In other words, be happy the company is successful since that means your IRA or 401k is profitable. I have no problem in the government assisting a new venture such as the green energies with some start-up funds etc. However, those subsidies should have a limited life.

What ever happened to the free market? We, the people, do we want to use our tax money to subsidize anyone, any business, or any bank? Let’s start over and just get rid of all subsidies, and then see where we go. I would start with a living wage, how about that, the people would actually get something.

Yet the most profitable industry can’t clean up the mega billions from your endless accidents and environmental damages as you’re getting TAX RETURNS from Uncle Sam, the media and government do one heck of a job covering up the mess that is FAR FROM over in the Gulf and the tar sands mess in Marshall, MI that is still being cleaned out of the Kalamazoo River whose price tag is closing in on one BILLION dollars now but all we have to keep hearing about STILL is Solyndra and how “green energy is a waste of taxpayer money,will never meet our energy needs and is a scam and Congress is NOT continuing subsidies for green, renewable energy sources at a time when we need it more then ever. Governmenrt subsidies were meant for developing new industries and helping them get started but of course, everything has been to make sure green companies FAIL so the behemoth called the fossil fuel industry is something we will be dependent on and be convinced will ALWAYS be the only game in town as the pollyting and destruction of our, water, air, the wars we wage that have gone into the trillions and lives lost over this antiquated energy source just somehow “get swept under the rug”. Rapier, don’t sell me your corporate oil loving vomit and try to convince it tastes good. I am not stupid.

Yet you posted a very uninformed comment. Some might even call it stupid. Certainly the point of the article whiffed right by you, which is: Oil subsidies persist because lots of people — liberals included — support programs that are classified as oil subsidies. They just don’t realize that’s what they are.

This is the most ridiculous thing I’ve ever read. The low-income programs mentioned at least 20 times account for a very small percentage of the loopholes. Oil companies get rich because the government makes money behind the scenes. This guilt trip about freezing families is just silly.

“The low-income programs mentioned at least 20 times account for a very small percentage of the loopholes.”

You are extremely uninformed. The vast majority — like 90% — of the money classified as oil subsidies is in that category. Just check the link.

You are also seriously misinformed if you think this is about a guilt trip about freezing families. It is an effort to show why oil subsidies persist. You certainly imply here that you don’t want to get rid of certain ones — you just want to downplay and minimize them; call them by some other name. And this is why they persist: People want to get rid of them because they think they are mostly something else.

I still do not understand the use of subsidies allowed to companies making profits of staggering amounts. Profits after taxes or no taxes through loopholes established for them. How does giving oil companies tax breaks have to do with elderly low income people getting help on their fuel cost ? Does the government help with their fuel bill or does the oil company help them ? All clear as mud ! On another issue where these big corporations get breaks for their corp. jets and the staggering amounts they pay their CEO and hundreds of VP’s are out of this world and this is before their end profits< staggering that they post. I also noticed an ad to click on to vote against president Obama for high gas prices, when there was higher prices under G W Bush make me think the article is political biased and if it is we will never know the truth-fact is neither side of the political area will ever tell the whole truth and we continue to be fed bull crap. Never does a story seem to tell the full story nor truth, but only what they want you to know. just saying, not clear even after reading this story.